Ian Gilyeat

Salesforce.com: Recession-Resistant, or Just Late to the Pain?

Late to the pain is my assessment. One of the key indicators as to the health of a subscription publishing operation is the balance sheet and how this is effected by cash flow needs (i.e. short-term sales & markeing needs for customer acquisition). In the case of Salesforce the liability that they carry to their customers is based on annual licenses that are paid in advance of the software delivered as a service. I believe this is shown on the balance sheet as Customer Advances. Marketing expense impacts current cash needs and pulls from the proverbial bank account. The ratio of cash in the bank and the liability that the company owes to its customers is a key indicator.

An an annual basis they look great but quarter over quarter, the Customer Advances have flat lined and the cash on the balance sheet took a dip in the last quarter. Based on this, the growth engine of this company, with nearly 50,000 subscribers is no longer in growth mode and it appears that they are drawing down the cash that their customers have given to them to deliver future services over the next twelve months.

Unless the next few quarters bring tremendous new customers into the company, my guess, is that the pain is on the horizon.